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HBI: FAIL

Conclusion: There is such a wide disconnect between economic reality and what HBI presented after the close. We’ve been so negative on it, but even if this stock is down 20%, we’d sell every share we owned. HBI said it should get to ‘True Earnings Power in 2H’. That’s what concerns us most. I can make a better case for a Zero than $25.

 

 

Is it me, or was this quarter simply surreal? Seriously. For those of you short it, congratulations. It’s going to be a good day for you. But today we’ll see downgrades and capitulation, and now we have to focus on what’s next. But after going the model (several times over) we’re coming up with '12 earnings about $0.90 (37%) below the mid-point of guidance.  

 

We can bicker about pricing vs cost inflation all we want. But we’re beginning to get concerned about a much bigger tail risk – liquidity. That’s when the logic of looking at this name on a trough multiple on trough earnings is simply flawed.

 

That’s perhaps the ultimate value trap. An 8x pe on the bottom of management’s guidance suggests a $18-19 stock. But what the market will likely do if our model is right is model this on EBITDA (as it should for such a highly levered company). Assets in this space have historically traded between 3-5x EBITDA. On our 2012 numbers, 5x EBITDA gets you $3.50 per share. At 4x, you’re looking at a donut and the bondholders will be sweating it out.

 

Let’s look at the Majors…

1)      HBI’s credibility is blown. It was just 13 weeks ago that the company said that it mis-judged the extent to which retailers would tighten inventories. So it reset earnings expectations. Mgmt said that cotton costs are not a profit issue but more of a timing issue, and that pricing was holding and elasticity was not a problem. Then it revealed that WMT cut massive Just My Size program in favor of private label. This happened after price increases went into effect.  How is that not a problem with price elasticity?

2)      This quarter, HBI takes down 1H guidance by $0.30 due to severe price competition in the wholesale distributor channel for its Imagewear (ie screenprinting) segment.

  1. No problem with pricing/elasticity? C’mon…in gauging elasticity, you need to look at the entire portfolio. A PM can’t look at his book of 50 stocks, and say that he outperformed the market if he excludes the 15 that underperformed.
  2. This category is about 40% of Outerwear, but only 8% of total company sales. How does that add up to a $0.30 EPS hit?
  3. HBI noted that ¼ of its Imagewear sales are what it refers to as ‘highly competitive.’ That’s only $95mm. At a 20% incremental margin (which is probably too high if they are right about it being so competitive), then we get to a $0.15 earnings hit if all of it completely goes away. The only way we can get to $0.30 is if half of this business (again, at a generous 20% margin) goes away entirely. I guess that’s possible, but it’s not what they indicated.

3)      Management noted that ‘Aside from the Imagewear business, they are doing quite well.’ Huh? Excluding Imagewear they’re guiding to flat sales for the next 2 quarters. They’re ‘pleased’ with flat? Flat stinks.

4)      ‘Solidified’ 2012 pricing is baked into guidance. Wasn’t Innerwear price baked into guidance six months ago, and Imagewear competition/prices baked into guidance three months ago? Why should we believe it now?

5)      Still plan for international to reach $1bn by mid decade and for Consumer Direct to be a growth driver. In the quarter, they were +0.6% and -1.6, respectively. They don’t sound like growth engines to me.

6)      I have no way to get anywhere close to the company’s $400-500mm in free cash flow guidance in 2012.

7)      HBI gave the political answer about changes at JCP – that it’s excited about the change. They might lose a little hosiery business there, but that’s all that’s in their plan. That’s a binary outcome, imho. JCP is about a 5%-6% customer for HBI. Family dept stores = 15%. Mass channel = 50%+. Ron Johnson at JCP is going to competitively bid out each section in the stores to see which brand wants it more. JCP might get the revenue, but it will be at a lower margin. PLUS, any special product workup is going to upset Kohl’s, Target, WalMart, Sears, Macy’s, Dollar Stores, etc… This will be a domino effect with or without HBI. Also, be sure to remember that price competition at retaisl in higher end categories is often funded by discounts in more commodity categories (ie discounts on Polo at Macy’s will be paid for by Jones Apparel Group, PVH’s Dress Shirt biz, and underwear vendors like HBI).

8)      Perhaps the biggest positive is that Even the company finally used cash to retire $200mm in debt. But what’s notable here is that – if we’re right on the model – it will be better served to have more cash on hand to meet debt service to the extent that cash flow gets tight.

 

In the end, as noted above, we can’t  think of a single reason to own this stock as the risk reward does not start to look remotely interesting until it’s a single digit name.

 

Brian McGough


WEEKLY COMMODITY CHARTBOOK

Soybeans, rice, and beef prices led the way during the past week, registering modest price increases as chicken wing prices also gained.  Coffee prices declined almost 10%.

 

WEEKLY COMMODITY CHARTBOOK - commod

 

 

CALLOUTS

 

Beef – WEN, JACK, CMG, TXRH

 

Beef prices are a significant cost for many companies within the restaurant space but we are highlighting WEN, JACK, CMG and TXRH.  For WEN and JACK, this is particularly relevant as roughly 20% of their respective COGs baskets are comprised of beef.  The chart of live cattle prices, below, shows how strong the momentum is in beef prices currently.  Corn and wheat prices declined over the last week is a bearish sign for beef prices, on the margin, but a far more substantial decline will be required to meaningfully impact price.  Supply and demand dynamics still, in aggregate, point to a continuation of elevated prices.

 

SUPPLY

 

The supply of beef in the U.S. remains low and production is expected to remain low for years.  According to CattleNetwork, several factors play into the motivation for an expansion of beef cow numbers.  While the January 2012 inventory report did highlight a 1% increase in beef replacement heifers and roughly 37,000 more heifers expected to calve in 2012 versus 2011, these metrics showed significant declines in 2011 versus 2010.  For 2011 and 2012 combined, beef heifers expected to calve dropped dramatically and total beef cow numbers during 2011 declined by almost 970,000. Prospects for future prices, in terms of livestock prices and retail beef prices, as well as profit margins and weather factors, will all impact motivation for an expansion in beef cow numbers.  Here is the full article.  As long as feed costs remain high, and cattle feeders are enduring negative margins, a rapid increase in supply will be difficult.

 

DEMAND

 

Demand for US beef remains high.  Record exports in 2011 are being followed up by rising demand both from domestic consumers and global markets.

 

 

Coffee – SBUX, DNKN, PEET, CBOU, THI, GMCR, MCD

 

Coffee prices dropped -9.4% over the past week.  Coffee on the spot market is now 20% cheaper than it was this time last year.  Coffee costs have impacted PEET heavily, as is evidenced by its below-expectations earnings in 4Q that were reported last night (the stock is down today).  The current trend in coffee prices could be positive for PEET over the longer term. 

 

SUPPLY

 

Reduced robusta coffee exports from Vietnam have helped send prices higher over the past week.  India cut its coffee export forecast for the crop year to September by 0.7%. 

 

DEMAND

 

Coffee prices have declined on concern that demand for commodities will soften after weaker-than-forecasted retail sales data caused concern among investors that the recovery may be faltering.

 

 

CHICKEN WINGS – BWLD

 

Commodity cost inflation for BWLD will step up in 1Q with 2Q being the most unfavorable compare if prices remain elevated, as wing prices bottomed in 2Q10.

 

SUPPLY

 

The six-week moving average egg sets number declined by -5.2% for the week ended 2/11 versus a year ago.  The contraction of the chicken supply looks like it is going to continue.

 

DEMAND

 

As beef prices go higher, we expect the food service industry to shift focus to chicken to alleviate cost pressures.

 

WEEKLY COMMODITY CHARTBOOK - egg sets wing price

 

 

CORRELATION TABLE

 

WEEKLY COMMODITY CHARTBOOK - correl

 

 

CHARTS

 

Coffee

 

WEEKLY COMMODITY CHARTBOOK - coffee

 

 

Corn

 

WEEKLY COMMODITY CHARTBOOK - corn

 

 

Wheat

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

 

Beef

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

 

Chicken – Whole Breast

 

WEEKLY COMMODITY CHARTBOOK - chicken whole breast

 

 

Chicken Wings

 

WEEKLY COMMODITY CHARTBOOK - chicken wing

 

 

Cheese

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

 

Milk

 

WEEKLY COMMODITY CHARTBOOK - milk

 

Howard Penney

Managing Director

 

Rory Green

Analyst


China to the Rescue? – Again?

Conclusion: We continue to hold the belief that China will not be a source of dumb capital to be used to help Europe fund its bailout mechanisms – if so, it would have done so already in OCT/NOV at much lower prices. Furthermore, we are of the belief that China will continue to demand concessions in return.

 

It’s clear that speculation around China’s [pending] involvement in funding the Eurocrat Bazooka matters to global financial markets, particularly considering a short-seller’s fear of: “China to buy everything.” What remains unclear to us, however, are the key details around China’s involvement: “When, how, and to what extent?”

 

The “why” is a given: in aggregate, Europe is China’s largest export market, accounting for nearly 19% of mainland Chinese shipments in 2011 (*Hong Kong and Singapore also re-export a great deal of Chinese products as well).

 

China to the Rescue? – Again? - 1

 

Moreover, with Chinese exports falling -0.5% YoY in JAN on sequentially-slowing YoY growth in shipments to Europe (-3.2% YoY in JAN vs. +7.2% YoY in DEC), the heat is incrementally on Chinese policymakers to come to Europe’s aid – particularly in light of this morning’s weakening European growth data (slowing GDP growth across the board).

 

China to the Rescue? – Again? - 2

 

Going back to the most important questions of: “when, how, and to what extent”, we continue to get left in the dark as far as the key details are concerned, leaving our Global Macro team with a thirst for more data in this regard. Consensus speculation on what the Chinese can do (as opposed to re-positioning according to what they will do) carries a great deal of risk at current prices.

 

This we know – the Chinese can channel investments into Europe via the following three avenues:

  1. An incremental rebalancing of its $3.2 trillion away from USD, GBP, or JPY assets and into EUR assets on the margin;
  2. Incremental investment from China Investment Corp, the nation’s $400B+ sovereign wealth fund; and
  3. Potentially through state-owned financial institutions such as China Development Bank and Export-Import Bank of China.

Moreover, PBOC Governor Zhou Xiaochuan did come out and say that the five “BRICS” countries all hold a “very positive attitude towards helping Europe”, they must continue to wait for the “right time and right opportunity” to invest. He went on to echo Premier Jiabao’s recent commentary that, “China hopes for more innovation from Europe to provide more lucrative products that are truly appealing to Chinese investors.”

 

All told, we continue to hold the belief that China will not be a source of dumb capital to be used to help Europe fund its bailout mechanisms – if so, it would have done so already in OCT/NOV at much lower prices. Furthermore, we are of the belief that China will continue to demand concessions in return (including real austerity, which is not equal to the promise of future austerity). Refer to our SEPT ’11 note titled “China to the Rescue?” for more details.

 

Below is a collection of our published remarks from 4Q that chronicle China’s [often-alleged] commitment to financing the Eurocrat Bazooka. The key themes of “when”, how”, and “to what extent” remain paramount:

 

DEC:

  • China is allegedly to create a new investment vehicle to manage $300B in EU/US assets. The fund is to mimic SAFE Investment Corporation Ltd., which yields ~$570B, has 65.8% of its assets in FDI and equity securities. If this new fund is real and anything like SAFE, it won’t be used to bail out ailing EU sovereigns. It will, however, look to buy European corporate assets on the cheap – something EU leaders haven’t been particularly in favor of (protectionism).
  • We continue to hammer away on our view that Asia will not be there in size to help lever the EFSF or some other form of E.U. bailout. Zhu Guangyao, China’s Vice Foreign Minister in charge of European affairs, had this to say regarding the use of China’s $3.2 trillion in FX reserves: “China can’t use its $3.2 trillion in foreign exchange reserves to rescue European nations… Foreign reserves are not revenues. China can’t use its reserves to fund poverty alleviation at home or to bail out foreign countries… Now is not the time for China to have a contingency plan in the event a Eurozone country defaults on its debts or exits from the 17-nation single currency. The government has already done its part to help Europe, which has the wisdom and strong economic fundamentals to solve its sovereign debt crisis.”

NOV:

  • Jesse Wang, executive vice president of China Investment Corp, the nation’s sovereign wealth fund, recent comments affirm our conviction in the view that China will not be a source of dumb, unlimited capital to finance the Eurozone bailout, but rather a source of smart money looking for attractive investment opportunities in distressed real assets: “The fund wouldn’t be the main channel if China helps tackle the sovereign debt crisis... However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.” Commerce Minister Chen Deming shared those views in his recent remarks: “While China has always been supportive of Europe’s rescue efforts, these will mainly depend on the euro zone itself… China will definitely be a part of any help offered by the global community… We are willing to further reform and further open our market, but other economies must be more open to us in return.”
  • In China, Gao Xiqing, president of China Investment Corp (the country’s sovereign wealth fund) had this to say regarding the potential of them reallocating assets to aid in the Euozone bailout: “When we talk about international investments, we must consider whether they serve our interests… We can’t say that we’re a generous nation and we can help you at whatever economic costs to us.” Additionally, Jin Liqun, chairman of the board at China Investment Corp, had this to say as well: “China cannot be expected to buy the highly risky bonds of euro-zone members without a clear picture of debt workout programs.” 
  • Two Chinese officials reiterated our view that China is unlikely to take part in bailing out Europe as a source of uninformed, unlimited capital. Zhang Tao, director of the international department at the PBOC suggested that China needs further details regarding the options for bailing out Europe: “At present there’s no specific plan that people have clear understanding of,” he said. Zhu Guangyao, vice finance minister, had similar remarks regarding the EFSF: “There’s no concrete plans yet so it’s too early to talk about further investments in these tools.”
  • Chinese Vice Finance Minister Zhu Guangyao confirmed our belief that China would not be a source of “dumb capital” for the EFSF, publically demanding more details about the “technicalities” of the fund. Additionally, China Investment Corporation (sovereign wealth fund) Chairman Jin Liqun said that “Europe is not really short of money” and publically challenged the European populace to “work harder”, “longer”, and “be more innovative”.

Darius Dale

Senior Analyst


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GENTING SINGAPORE 4Q11 PREVIEW

We’re expecting another disappointing quarter from Genting. 

 

 

Our property level EBITDA estimate of S$390MM is about 5% below consensus.  Based on our proprietary analysis of government tax data, we believe that the Integrated Resorts in Singapore generated Gross Gaming Revenue (GGR) of S$1.94BN, down 5% QoQ but up 13% YoY.  MBS reported GGR of S$1.01BN, implying that RWS produced only S$930MM compared to S$975MM in 3Q11. 

 

Part of the issue is that Singapore growth may be somewhat tapped out as we wrote about in ‘SINGAPORE Q3 REVIEW’ on 11/11/11.  RWS also experienced a several week delay in the grand opening of the Equarius Hotel and Beach Villas (opening tomorrow) and its slot/EGT expansion – both originally slated to open by Christmas.  We suspect that management walked down Q4 expectations in January but it looks like numbers still need to come down.  We noticed a change in tone from when we spoke with the company in mid-January, compared to the tone in late November.  In late November, their expectation seemed to be for a big sequential increase in VIP similar to Q4 2010.  However, management was much more cautious in January – shifting the focus on what they need to do to get Phase 2 of their resort open later in 2012 rather than near-term growth.

 

 

Details:

 

We estimate that RWS will report net revenue of S$769MM and EBITDA of S$390MM.   RWS did S$375MM of EBITDA last quarter on S$789MM of revenues which included a large bad debt charge of S$38MM.  Without the abnormally high bad debt charge, 3Q EBITDA would have been S$408MM. However, 3Q also benefited from high hold of 3.17%.

  • Gaming revenue, net of commissions of S$626M
    • Gross VIP revenue of S$485MM and net revenue of S$254MM
      • We expect RC volume to increase sequentially to S$17BN, down 21% YoY due to more conservative credit extension and the proximity of Chinese New Year to Jan 1.  This likely reduced what could have been two VIP visits to versus just one last year.  Last year, RC volumes increased 39% from 3Q to 4Q.
      • Hold of 2.85%
      • Rebate of 1.25%
    • Gross Mass table of S$297MM and S$239MM net of gaming points - Gaming points equaled 4% of drop or S$58MM
    • $152MM of slot and EGT win
      • The incremental slots/EGT expansion was installed the second week of January vs. by Christmas as originally scheduled
  • Non-gaming revenue of S$144MM
    • Hotel room revenue of S$35MM
      • There should be a sequential pick up in occupancy due to the holidays
    • S$23MM of F&B and other revenue
    • USS revenue of S$86MM
      • Transformers opened on December 3rd
      • The quarter also benefited from school holidays
  • Gaming taxes of S$89MM
  • Implied fixed costs of S$181 – similar to last quarter

HYATT YOUTUBE

In preparation for HYATT's Q4 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

YOUTUBE FROM Q3 CONFERENCE CALL

  • “Overall as of the end of the third quarter, our signed contract base for future hotels exceeded 150, representing more than 36,000 rooms which is a small increase from last quarter”
  • Renovation of big 5 owned hotels: “We're starting to see the benefits of these renovations as hotels are starting to see RevPAR index growth, higher levels of interest among meeting planners and indications that the renovated hotels will be even more appealing to transient and group guests for 2012 and beyond.” 
  • “From a revenue displacement perspective, because we had rooms out of service in the fourth quarter of last year, we do not expect to see any additional negative impact from displacement on a year-over-year comparative basis going forward”
  • “Visibility to the future continues to be limited as booking windows continue to be tight.  About one-third of our group business and virtually all of our transient business for 2012 has yet to book.”
  • “Corporate rate negotiations have just begun, and while we hope for high single-digit percentage rate increases because of relatively high levels of industry occupancy and continuing limited new hotel supply growth, the fact is that visibility is limited”
  • “We continued to shift more business away from lower discount, promotional and opaque third-party rates to higher rated corporate negotiated rates”
  • “As we did last quarter, we continue to see an increase in food and beverage revenues and ancillary revenues on a per occupied room basis at North America full service hotels. Specifically, all three measures outlet revenue per transient room night, banquet revenue per group room night and other operating revenue per occupied room increased.”
  • “Our adjusted SG&A expenses increased approximately 15% in the quarter. Approximately a third of this increase is due to bad debt expense and performance surcharges related to two properties, a third, due to increased head count driven by growth initiatives and a third due to inflation and increased business levels.”
  • “Our full-year forecasted tax rate percentage is currently in the mid 20% range, excluding discrete items.”
  • “We have fine-tuned our capital expenditure estimate to be between $390 million and $400 million. Our expectation of depreciation and amortization expense has increased to approximately $300 million, primarily due to the LodgeWorks transaction.”
  • “Our estimate for interest expense has increased to approximately $60 million, primarily as a result of our recent debt issuance.”
  • “Our SG&A, if you exclude the one-time I would describe the bad debt expense or the performance cues as really one-time events, is running at approximately a little over 8% on a year-to-date basis.”
  • “The total CapEx investment will be lower than what's reflected for 2011 largely because, 2011 had the renovations that related to our five big hotels which are largely complete, and the figure broadly was about 40% of the $400 million that you have for 2011.”
  • “Approximately a third of the margins were relative to property refunds. Now we do have property refunds. We've seen some last year. We've seen some this year. It just happened this quarter, so when you compare quarter-over-quarter, it is a one-time event.  The rest of it was largely driven by the portfolio and it's driven by a couple of factors. First, the margin increase is broad-based so it's not a few properties driving it. It's across the board, both North America and international. Secondly, mix shift which is trending towards higher rated group and transient business has driven higher room and food margins. And we continue as we've done in the past to drive productivity through effective cost control. Our cost per occupied room increase was less than half of the occupancy increase we saw in the quarter.”
  • “I think overall, the LodgeWorks transaction should marginally help margins over the long-term. So it should be accretive”
  • “Our quarter three RevPAR growth in Europe was in the mid-single digits, so slightly higher than what we've seen in the international business. We've seen really no change, similar trends continue into recent weeks…Our presence is Europe is small. If you look at our total room base, we have about 5% of our room base invested in Europe. And our presence in Europe is largely concentrated in Germany, France and in a few markets in the UK.”

MAR YOUTUBE

In preparation for MAR's Q4 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

YOUTUBE FROM Q3 CONFERENCE CALL

  • “For 2012, total revenue bookings for the Marriott brand are running up 7% year-over-year, compared to only 3% pace in February.”
  • “In mid-August, we surveyed 4,500 industry group meeting planners. Two-thirds said that no other lodging company is easier to do business with than Marriott, and 80% said they are more likely to do business with Marriott brands in 2012 than in 2011.”
  • “Our international REVPAR growth is likely to slow from the third quarter pace. Many of our newer comparable hotels in Asia have benefited from ramp-up in recent quarters, and the fourth quarter will reflect tougher comps. REVPAR in Europe will likely moderate in the fourth quarter due to the timing of this year's fairs in Germany, as well as tougher comparables."
  • “REVPAR in London is expected to remain strong, but we anticipate weak performance in the British provinces as a result of government austerity efforts. So for the fourth quarter, we are assuming international system-wide REVPAR growth to increase 3% to 5% on a constant-dollar basis, or 5% to 7% excluding the Middle East and Japan.”
  • “In North America, we expect system-wide REVPAR growth of 6% to 8%. Across North America, we see little evidence of economic slowdown in our lodging business. Group cancellations and attrition levels are running at normal levels. In fact, group attendance is running a bit higher than meeting planner expectations at many hotels.”
  • “On this basis, we expect fourth quarter contract sales to total $200 million to $210 million, and timeshare sales and services net to total $68 million to $73 million. Similarly, we would expect timeshare segment results would total $45 million to $50 million, reflecting continued reductions in interest income as outstanding mortgage balances continue to decline.”
  • “For the fourth quarter, we expect earnings per share to total $0.45 to $0.50 per share, a 15% to 28% increase over the prior-year adjusted EPS.”
  • “For the full year 2011, we expect adjusted EPS will increase 19% to 23%, to $1.37 to $1.42. We anticipate adjusted EBITDA will climb 7% to 8% compared to last year's adjusted amount. Our guidance assumes the spinoff will not occur until year-end 2011, and again, includes the $13 million pre-tax we spent on year-to-date spinoff costs, but excludes future spinoff costs. On a cash basis, we estimate the total cash transaction costs related to the spin at $40 million to $50 million for the full year 2011. We have already expensed about $13 million of this through the income statement year-to-date. Not all of the $40 million to $50 million will be expensed in 2011, as some will be capitalized.”
  • “For 2011, we assume $500 million to $600 million in Marriott investment spending, including $50 million to a $100 million in maintenance spending. Year-to-date, we've repurchased over 36 million shares for over $1.2 billion through the end of the quarter, and given our current debt levels, we expect to slow our repurchase pace in the fourth quarter.”
  • “3% REVPAR growth correlates with modest GDP growth, perhaps 1% or so, and it's hopefully too conservative. 7% REVPAR growth correlates to 2.5% to 3% GDP growth, and is probably too aggressive to count on, but we present these bookends to allow investors to independently model the business, as we all have different views of the future.”
  • [Autograph] “With 24 hotels worldwide today, we expect to have roughly 40 properties opened or signed by year-end 2011 and 60 to 70 properties by year-end 2012.”
  • “We expect to open roughly 5,000 rooms in the fourth quarter of this year, 30,000 rooms for the full year of 2011, and another 30,000 rooms in 2012.  We expect to achieve growth in rooms with modest net invested capital. We also expect to generate meaningful amounts of free cash flow.”
  • “In 2012, we expect to have another $500 million to $1 billion of cash available for share repurchase or opportunistic investing. In fact, even if we only see 3% REVPAR growth, we would expect some level of share repurchase activity in 2012.”
  • “Group revenue on the books is up 7% for 2012, and U.S. government per diems are up 4% to 7%, depending on the market. We'll have to see how special negotiated corporate rates turn out, but our strong book of group business gives us some negotiating leverage.”
  • “I would say that we feel really good about the bookings going forward, both for Q4 and for 2012, and we think sales transformation is a piece of that. I think it's one of the reasons we feel positive about the way that program is developing....We think most of that is economic cyclicality, group business tends to come back a little bit more slowly, and some of that is the impact of the D.C. market, where we've got a number of big boxes, and obviously that's a little bit weaker.”
  • “I think implicit in the numbers we've got within that 3% to 7% range next year is relatively more modest growth in Europe than in other parts of the world, and I think a bit of that is their fare schedule, which is a bit more relevant to the way our business reports there than it is in other parts of the world. So I think part of that is just a bit more modest expectations for those economies generally.”
  • “The hotels that are in our pipeline of 105,000 rooms are 90% under construction in China, some number like that, and will represent the bulk of what we open into mid-2012.”
  • “We'll keep our debt levels at a 3x coverage ratio. We obviously want to stay BBB.  That keeps us in the commercial paper markets. We think that's an efficient debt structure. So we'll maintain that 3x, but with growing EBITDA, obviously that gives us debt capacity that we can draw upon, but at the same time maintaining that 3x. So I think you'd see a combination when I talk about that $500 million to $1 billion capacity, being made up of, again, maintaining that 3x plus the excess cash.”
  • [Courtyard incentive fees] “We haven't done budgets yet for 2012, but I don't think I'm sticking my neck out too far to say that at least some of the largest portfolios of these few first hotels are not paying incentive fees in 2011, and we're not anticipating that they'll pay incentive fees in 2012.”
  • “We will not publish what the commission rate is with Expedia. Our contract with them comes to term at the end of this year. We are in discussions with them about terms of a renewal. I think, generally, what we can tell you is that someplace between 2% and 3%, maybe about 3% of our total business comes from online travel providers, including Expedia, but that would include the Pricelines and Orbitzes and Travelocitys, and others. Expedia probably is in the 1%, 1.5% maybe, range of our system. All the OTAs will be more significant in hotels which are more leisure-dominated."

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